A Perfect Storm in Banking, Regulatory Backlogs, New Crypto Rules

A perfect storm in banking: Regulatory backlogs and new crypto rules, while troubleshooting the “new normal”


By Emily Shanks, Director of Banking Services at mthree 

You too may be familiar with these stats from EY: 

Since 2008, regulators have handed out more than $28 billion in fines for money laundering and sanctions violations. This number pales into insignificance compared to the estimated yearly cost of money laundering and associated crimes, which could be as high as $3.5 trillion.  

Your average large bank already spends $1 billion a year trying to tackle this through their fincrime operations.  

But instead of asking “is that enough”, a better question might be, “exactly how much more should we be doing about it”. Or better still, “how long do we have until it’s too late?”.  

Why? Because a perfect storm is brewing in the world of banking services, which is tied to a sea change in regulatory scrutiny. 

As the timeline in this article shows, we’ve gone from crickets in 2020, to two regulatory updates in Q1 and Q2 in 2021, to (at the time of writing this) no fewer than nine more on the way for the remainder of this year and early next year.  

A triple whammy  

I see three forces at play. Firstly, a backlog of changes to existing regulations that were delayed due to the pandemic is finally being unleashed. Secondly, the industry is facing a suite of all-new rules to do with regulating crypto assets. And to top it off, making life more difficult on both of those fronts, we have the ongoing problem of remote working scenarios causing things to fall through the cracks. 

The latter is to do with communication and privacy. For instance, banking services teams have moved from the controlled physical environment of a trading floor, where in some organizations no mobile phones are permitted, to working in isolation from their bedrooms, unable to quickly check a task with a colleague next to them, largely unobserved. It’s an obstacle to the stringent nature among banks of preventing information being shared that shouldn’t – whether on purpose or by accident. 

This isn’t a criticism. As I’ve said before, it is the power of human adaptability and resilience that’s enabled the financial industry to keep the lights on throughout 2020 and into 2021. It takes time to figure out a “new normal”. 

But it would be naive to think that the industry’s survival hasn’t come at a cost.  

The pressure is building. The extended holding pattern of 2020 is giving way to a reduction in leniency from the regulators. We all knew it – this interminable phase of just-keeping-things-ticking-over had to come to an end sooner or later. 

On the upside, as the above article also mentioned, every sea change gives businesses the chance to do more than just the bare minimum, and turn it into their competitive advantage. Such as the wave of investment banks that are deciding to set up entirely new business units this year.  

Crypto as friend and foe 

In 2021 alone, three major banks have announced plans to open new digital divisions that are dedicated to crypto assets: BNY MellonGoldman Sachs and State Street.  

It’s official, crypto has entered the mainstream. Only two or three years ago, banks were decrying it as nonsense. The speed of this shift has caught many of us by surprise. 

And the increase in breadth and depth of virtual currencies has triggered changes to AML legislation. We’re seeing standards updated to include exchanges and wallets and other cryptocurrency entities. And of course, more legislation brings more regulation, which has a knock-on effect on banking services and operations. 

There’s a huge opportunity here for banks to tap into a new asset class, but as with all novel technologies, you can’t win by simply slotting it into an existing set of systems and processes, such as those in KYC and AML designed for fiat currencies. 

I’m stating the obvious, but crypto brings additional fincrime risk. Blockchain is ultra transparent yet also ultra opaque. Every transaction is recorded yet nobody knows who’s transacting. We know that crypto is being used by criminals. We’re just not sure who or how. We also know that crypto has turned out to be more valuable than anyone could have imagined.  

Basically, you’re adding a new asset that’s incredibly complex on top of your existing AML challenges – and banks are already facing huge regulatory milestones. Hence the scramble among financial services to develop bespoke units for this specialism alone. 

Everyone needs more pairs of hands  

The long and short of it is that there’s an awful lot of stuff in the regulatory calendar. In order to achieve it all, banks are going to need more resources to deal with the upcoming pain.  

Whichever way you look at this next chapter in the history of financial services, there is work to be done. Lots of it. And that means more people. If ever there was a time to invest in your business’s most important asset – crypto aside – this is it. 

A pipeline of emerging talent for anti-financial crime roles 

There’s more than one way to prepare your workforce to weather the storm, but if bringing in pre-trained graduates is at the top of your list, why not take a look at mthree? Our industry-aligned pathways in banking services include client lifecycle management, trade lifecycle management and data operations.  

At mthree, Banking Services encompasses all those critical functions performed in Banking that do not require coding or software development. Business Analysis, PMO, Data Operations functions, Regulatory as well as traditional Operations and so much more across the demands of modern Banking. 

If you’re interested, I’d love to learn more about what you’re looking for help with. You can reach me on the contact details below, or find me at this year’s CEFPRO Fraud and Financial Crime event.  

You can reach Emily directly by email at emily.shanks@mthree.com or by phone on +44 (0) 7423 664507.